STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.

The following table details total stock-based compensation expense for the three and six months ended June 30, 2017 and 2016, included in the condensed consolidated statements of income:



	Three Months Ended						Six Months Ended
(In thousands)	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Costs of sales	$	425		$	374		$	743		$	773
Operating expenses	1,261			1,120			2,224			2,104
Pre-tax stock-based compensation expense	1,686			1,494			2,967			2,877
Less: income tax effect	(658		)	(583		)	(1,157		)	(1,122		)
Net stock-based compensation expense	$	1,028		$	911		$	1,810		$	1,755

The Company's stock-based compensation awards are in the form of restricted stock and performance share awards made pursuant to the Company's 2005 Restricted Stock Plan, 2012 Restricted Stock Plan for Non-Employee Directors, and the Amended and Restated 2014 Incentive Plan (the "Plans"). As of June 30, 2017, there was $14.1 million of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to five years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.

A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the six months ended June 30, 2017 and 2016 is as follows:



	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
	Shares		Weighted-Average Grant Date Fair Value Per Share		Shares		Weighted-Average Grant Date Fair Value Per Share
Nonvested restricted stock outstanding at beginning of period	184,885		$	54.63	191,397		$	57.12
Granted	222,390		32.87		86,984		52.21
Vested	(80,558	)	55.34		(72,393	)	57.75
Nonvested restricted stock outstanding at end of period	326,717		$	39.64	205,988		$	54.82

Performance Share Awards

In 2014, the Company began to grant performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan ("2014 Incentive Plan"). The number of shares of common stock earned and issuable under the award is determined at the end of each performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. If certain levels of the performance objective are met, the award results in the issuance of shares of restricted stock corresponding to such level, which shares are then subject to time-based vesting pursuant to which the shares of restricted stock vest in equal annual installments over the applicable vesting period, which is generally three years for restricted stock issued pursuant to performance share awards.

In the event that the Company's financial performance meets the predetermined target for the performance objective, the Company will issue each award recipient the number of restricted shares equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined target, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined target, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance level, no shares will be issued.

The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the performance share awards is the quoted market value of CPSI Common Stock on the grant date less the present value of the expected dividends not received during the relevant period. Expense is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.

A summary of performance share award activity under the 2014 Incentive Plan during the six months ended June 30, 2017 and 2016 is as follows, based on the target award amounts set forth in the performance share award agreements:



	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Performance share awards outstanding at beginning of period	77,594		$	49.64	49,471		$	49.29
Granted	189,325		29.94		77,594		49.64
Forfeited or unearned	(77,594	)	49.64		(49,471	)	49.29
Performance share awards outstanding at end of period	189,325		$	29.94	77,594		$	49.64